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New Mining Charter released, with new BEE requirements

Boards must comprise 50% black South Africans, 20% of which must be black women

15 June 2018 - 17:28
Allan Seccombe

Picture: GETTY IMAGES

Past empowerment deals are recognised in the newly released Mining Charter and mining companies have five years in which to top up to 30% ownership, including the contentious 10% free-carry for communities and employees as part of their ownership structures for new mining rights.

"As previously explained, the industry does not favour a requirement of 10% ‘free-carry’ on new mining rights as part of the proposed 30% black economic empowerment (BEE) equity ownership target, as it would render uneconomic a significant proportion of potential new projects, and would undermine and constrain any prospects for growth in the sector and indeed the economy as a whole​," the Minerals Council SA (formerly the Chamber of Mines) said in a statement.

In one of the most highly anticipated actions by newly installed Mineral Resources Minister Gwede Mantashe, the charter, which replaces the problematic version gazetted by his predecessor, Mosebenzi Zwane, precisely one year ago, addresses one of the major concerns in the mining sector about the recognition of credits stemming from past and lapsed empowerment transactions.

A new addition is the stipulation that boards must comprise 50% black South Africans, 20% of which must be black women. The 50% black representation is carried down through the organisation to executive and senior management. For junior-level management, the target is set at 70%. All these positions must include members of the BEE structures.

For junior miners, who have asked to be exempt from various provisions of the charter, there is some relief. “In respect of junior miners, a right holder may make representations to the minister regarding the extent to which the Mining Charter elements shall apply.”

The first two charters, dating back to 2004, set a target of 26% black ownership of mining companies by the end of 2014.

“An existing right holder who, at any stage during the existence of a mining right, achieved a minimum of 26% BEE shareholding, and whose BEE partner(s) has/have since exited the BEE transaction, shall be recognised as compliant and must, within a period of 5 (five) years from the date of coming into operation of the Mining Charter, 2018, supplement their BEE shareholding from 26% to a minimum of 30%,” the new charter states.

The increase to 30% in the new charter, which is open for public comment for a month before it will be gazetted, stipulates that communities and employees will equally hold 8% each of the companies, with five percentage points of that termed a free-carry.

Senior mining executives said there were very few mining projects in SA that could sustain a 10% free-carry, or shareholders of those rights paying none of the costs, yet taking 10% of the benefit.

Zwane’s charter gave companies 12 months to reach the 30% ownership level and provided no recognition of past deals, which is one of the major changes in the new charter compared to last year’s, which the Minerals Council of SA challenged in court, seeking a review and setting aside of the document.

Applications already with the Department of Mineral Resources will be processed in line with the second charter, requiring 26% BEE ownership and the companies will have five years in which to top up to 30%.​

Trickle dividend

The new charter includes the stipulation that mining companies pay a trickle dividend equal to 1% of earnings before interest, tax, depreciation and amortisation — essentially operating profit — to employee and community empowerment partners from the sixth year of a mining right until dividends are paid by the companies.

In the 12-month period that companies don’t declare dividends after the six-year period, the trickle dividend will kick in.

There was no mention of whether the black entrepreneur structure holding the remaining 14% of the total 30% empowerment structure would benefit.

The charter proposes that if the entrepreneur sells or disposes of their stake, those empowerment credentials will be recognised for the duration of the mining right, provided those shares were held for at least a third of the duration of the mining right and that “unencumbered net value [has] been realised.”

Veering away from the previous versions of the charter, the new document places an onus on the empowerment entrepreneur to “re-invest a minimum of 40% of the proceeds from the disposed equity in the mining industry”.

Mining companies can offset up to 11% of the ownership element held by the empowerment entrepreneur through involvement in beneficiation of minerals and the sale of mineral production at an unspecified discount to mine-gate prices, which is the market price of those minerals less transport costs, or upgrading a portion of their own production to achieve a higher value.

One of the contentious clauses carried over from Zwane’s charter is the stipulation that 70% of expenditure on mining supplies or procurement be spent with local manufacturers, with 21% of that on materials coming from black-owned companies, 5% from black-women controlled companies or 51% youth-owned companies.

Mining companies have said there just aren’t enough of these companies to provide materials and they foresee complications arising from not meeting the charter’s requirements through no fault of their own making.

The charter retains the Zwane charter requirement that 80% of spending on services be with South African companies, with 60% of that going to black-owned companies and 10% to black women-owned companies.

The charter states: “A right holder must ensure that the terms and conditions offered to BEE entrepreneurs, including BEE women entrepreneurs or youth-owned enterprises, are not less favourable than those offered to other suppliers.”